Open a
529 Qualified Tuition Plan.
For as little as $25, you can open a qualified tuition program that will
allow you to invest money for college and have all the earnings be entirely
tax-free (not tax-deferred, tax-free). If you are saving for college,
you're nuts not to use these. Some details:
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The plan is opened with a state that offers them (virtually all do).
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You don't need to open them in your state of residency, and may use
the funds for any accredited college in the US regardless of which state's
plan you are using.
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Some states offer special benefits for residents, so you should
check. The fabulous web site run by Joe Hurley, CPA at www.savingforcollege.com
has the most complete and up-to-date information on the various offerings.
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If your state doesn't offer any special benefits for residents, my
favorite plan is the Vanguard Nevada plan: low expenses, US and
International index fund options, and the ability to join the Upromise
program to save more as a result of your regular spending.
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Your humble servant wrote an article
for Harvard Magazine on saving for college that is available on the web
for your reading pleasure.
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There are some potential tax consequences to 529 plans (as well as other
savings programs) that should be considered. In addition to reviewing the
general information at the Hurley site (not being associated with him, I cannot
be responsible for the accuracy and completeness of the information on the
board), be sure to consult with your tax advisor to find out about those
consequences.
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